Full Year Results 2018/19 1 Disclaimer For the purposes of the - - PowerPoint PPT Presentation

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Full Year Results 2018/19

Pennon Full Year Results 2018/19 2

Disclaimer

For the purposes of the following disclaimers, references to this “document” shall mean this presentation pack and shall be deemed to include references to the related speeches made by or to be made by the presenters, any questions and answers in relation thereto and any other related verbal or written communications. This document contains certain “forward-looking statements” with respect to Pennon Group’s financial condition, results of operations and business and certain of Pennon Group's plans and objectives with respect to these matters which may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipate”, “aim”, “believe”, “continue”, “could”, “due”, "estimate“, “expect”, “forecast”, “goal”, “intend”, “probably”, "may", “plan", “project”, “seek”, “should”, “target”, “will” and related and similar expressions, as well as statements in the future tense. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will or will not occur in the future. Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation, development

• r performance of the Group and the estimates and historical results given
• herein. Important risks, uncertainties and other factors that could cause actual

results, performance or achievements of Pennon Group to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things, changes in Government policy; the exit

• f the United Kingdom from the European Union; international treaty changes

and other events; re-nationalisation; regulatory and legal reform; compliance with laws and regulations; maintaining sufficient finance and funding to meet

• ngoing commitments; non-compliance or occurrence of avoidable health and

safety incidents; tax compliance and contribution; failure to pay all pension

• bligations as they fall due and increased costs to the Group should the

defined benefit pension scheme deficit increase; non-recovery of customer debt; poor operating performance due to extreme weather or climate change; macro-economic risks impacting commodity and power and other matters; poor service and/or increased competition leading to loss of customers; business interruption or significant operational failure/incidents; difficulty in recruitment, retention and development of skills; non-delivery of regulatory outcomes and performance commitments; failure or increased cost of capital projects/exposure to contract failures; failure of information technology systems, management and protection, including cyber risks. These risks will be described in greater detail in the Pennon Group Annual Report to be published in June 2019. Forward looking statements should therefore be construed in light of such risks, uncertainties and other factors and undue reliance should not be placed on

• them. Nothing in this document should be construed as a profit forecast.

All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Pennon Group or any other member of the Pennon Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Pennon Group may or may not update these forward-looking statements. This document is not an offer to sell, exchange or transfer any securities of Pennon Group or any of its subsidiaries and is not soliciting an offer to purchase, exchange or transfer such securities in any jurisdiction. Without prejudice to the above, whilst Pennon Group accepts liability to the extent required by the Listing Rules, the Disclosure Rules and the Transparency Rules of the UK Listing Authority for any information contained within this document which the Company makes publicly available as required by such Rules: a) neither Pennon Group nor any other member of Pennon Group or persons acting on their behalf shall otherwise have any liability whatsoever for loss howsoever arising, directly or indirectly, from use of the information contained within this document; b) neither Pennon Group nor any other member of Pennon Group or persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this document; and c) no reliance may be placed upon the information contained within this document to the extent that such information is subsequently updated by or

• n behalf of Pennon Group.

Past performance of securities of Pennon Group cannot be relied upon as a guide to the future performance of any securities of Pennon Group.

3

Chris Loughlin Group Chief Executive

Full Year Results 2018/19

Pennon Bringing resources to life

Delivered strong results in a responsible and sustainable way Growth driving attractive dividend sustainability

4

• Uniquely achieved fast-track status in successive price reviews
• Continuing sector leadership throughout this period – cumulative RORE(2) 11.8%
• Operational resilience despite extreme weather
• Confidence in continued outperformance next period – outperformance in all areas

South West Water

• Focus on de-risked infrastructure model, backed by index linked long-term contracts
• Successful ERF(1) build out and operations >90% availability
• Confidence in long-term market outlook – growth opportunities
• Investment in plastics recycling

Viridor

(1) ERF – Energy Recovery Facility (2) RORE – Return on Regulated Equity - see slide 35 for further details

Full Year Results 2018/19

Pennon Trusted, Collaborative, Responsible, Progressive – living our core values

• Prioritising the interests of customers, employees and the environment
• Delivering outstanding service to customers and communities
• Significant sustainable investment for growth across water and waste sectors

Leading, responsible and sustainable UK water and waste operator Our core values are embedded in our sustainable way of operating

• Board alignment with stakeholders reflected in our approach
• Appropriate gearing, sustainable financing framework in place
• Paying fair share of UK tax

Focused on strong financial control, sound administration and good governance

• A well established sector leading dividend policy
• Sharing financial outperformance between customers and shareholders – giving customers a stake

and say Value creation for stakeholders

5

Susan Davy Chief Financial Officer

Full Year Results 2018/19

7

2018/19 Financial Highlights Robust financial performance

+13.6%

(2)

Earnings Per Share

Statutory Underlying

+6.5% +6.4%

(3)

Dividend Per Share

+7.2%

(1)

Underlying EBITDA Strong Balance Sheet

Effective Interest Rate 3.6%

(1) Before non-underlying items, see slide 12 (2) Adjusted EPS before deferred tax, non-underlying items and proportionately adjusted for the return due on the perpetual capital securities (3) Dividend policy of 4% + RPI to 2020. RPI 2.4% at March 2019

Full Year Results 2018/19

8

Pennon Robust financial performance

Underlying(1) 2018/19 £m 2017/18 £m Change Revenue 1,478.2 1,393.0 +6.1% EBITDA 546.2 509.6 +7.2% Adjusted EBITDA(2) 592.7 562.3 +5.4% Depreciation and Amortisation (195.2) (185.7) (5.1%) Operating Profit 351.0 323.9 +8.4% Net Interest (83.2) (74.5) (11.7%) Share of JV Profit After Tax 12.4 9.4 +31.9% Profit Before Tax 280.2 258.8 +8.3% Non-underlying Items Before Tax(3) (19.9) 4.1

• Statutory Profit Before Tax

260.3 262.9 (1.0%) Tax (37.7) (41.0) +8.0% Statutory Profit After Tax 222.6 221.9 +0.3% Underlying Earnings Per Share(4) (p) 57.8 50.9 +13.6% Statutory Earnings Per Share (p) 51.1 48.0 +6.5% Dividend Per Share(5) (p) 41.06 38.59 +6.4%

A B C D D EPS ahead of 2017/18

• On both an underlying and statutory

basis benefiting from lower hybrid charge than prior year

Non-underlying items

• Derivatives associated with SWW

2040 bond

• GMP(6) pension equalisation
• Interserve provision – reflecting credit

quality

EBITDA growth momentum

• Strong performance across our Water

and Waste operations

• Focus on efficiencies

Profit before tax growth

• Strong results driven by Viridor ERF

build out and performance

• Efficient finance costs – effective rate

3.6%

A B C D

(1) Before non-underlying items, see slide 12 (2) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (3) Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of financial performance (4) Adjusted EPS: before deferred tax, non-underlying items and proportionately adjusted for the return due on the perpetual capital securities (5) Dividend policy of 4% + RPI. RPI 2.4% at March 2019 (6) GMP – Guaranteed Minimum Pension

Full Year Results 2018/19

Viridor Delivering growth underpinned by ERF portfolio

Underlying(1) 2018/19 £m 2017/18 £m Change Revenue(2) 852.7 785.7 +8.5% EBITDA 178.9 150.2 +19.1% ERFs 154.8 123.7 +25.1% Landfill 4.8 5.6 (14.3%) Landfill Gas 20.6 23.3 (11.6%) Recycling 14.9 15.0 (0.7%) Contracts, Collections & Other 39.0 39.3 (0.8%) Indirect Costs (55.2) (56.7) +2.6% Depreciation and Amortisation (78.0) (71.6) (8.9%) Share of JV Profit After Tax 12.4 9.4 +31.9% Net Interest (24.8) (17.2) (44.2%) Profit Before Tax 88.5 70.8 +25.0% Capital Expenditure(3) 241.7 213.0 +13.5% Share of JV EBITDA(4) 31.9 38.9 (18.0%) IFRIC 12 Interest Receivable 14.6 13.8 +5.8% Adjusted EBITDA(5) 225.4 202.9 +11.1% New ERF capacity on stream

• 3 new ERFs operational in 2018/19
• Investment in additional throughput

capacity at Glasgow

• Increased like for like(6) performance vs

2017/18

• Robust performance from JVs - additional

stake in Runcorn I ERF acquired Optimising landfill

• 2 landfill sites closed in the year –

forecasting 6 sites remaining open for the medium / long term

• Invested in landfill gas for greater collection

efficiency Delivering in recycling

• Performance in line with expectations and

PY guidance

• EBITDA margin/tonne improving
• Optimising contracts and asset base

Focus on cost base

• Driving 17% reduction in real terms in

indirect costs since 2015/16

9

(1) Before non-underlying items, see slide 12 (2) Including landfill tax and construction spend on service concession arrangements (3) Including construction spend related to service concession arrangements (4) Joint venture EBITDA impacted by disposal of VLGM in 17/18 (5) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC12 interest receivable (6) Excluding impact of liquidated damages and sites opening part way through year

Full Year Results 2018/19

South West Water Strong outperformance – momentum continues

10

Underlying(1) 2018/19 £m 2017/18 £m Change Revenue(2) 581.0 571.3 +1.7% Operating Costs (213.9) (210.4) (1.7%) EBITDA 367.1 360.9 +1.7% Depreciation and Amortisation (116.0) (113.1) (2.6%) Operating Profit 251.1 247.8 +1.3% Net Interest (70.5) (67.3) (4.8%) Profit Before Tax 180.6 180.5 +0.1% Capital Expenditure 154.0 184.2 (16.4%) Return on Regulated Equity: WaterShare RORE(3) 11.6% 11.1% +0.5% Ofwat RORE(4) 12.0% 12.5% (0.5%)

Revenue – dry weather driving increases

• Net tariff increase of 1.0%(5)
• Increase in metered volumes 1.4% as a

result of dry weather

Momentum in efficiency

• Continuing efficiencies minimising

c.£5m costs of extreme weather and replenishment of water resources in H2

• Cost increases below average inflation

– 3.1% for the year

• Continued progress on debt collection

– bad debt fallen to c.0.4% of revenue

Strong RORE

• Maintaining momentum, cumulative

K6 position 11.8% - broadly consistent with Ofwat approach

• On track to deliver c.£300m of Totex
• utperformance by 2020

(1) Before non-underlying items, see slide 12 (2) Includes wholesale revenue for non-household customers (3) Financing outperformance based on average forecast RPI for K6 of 2.8% (4) Ofwat’s definition of financing outperformance calculated based on average RPI of 1.1% for 2015/16, 2.1% for 2016/17, 3.7% for 2017/18 and 3.1% for 2018/19. (5) Net tariff increase reflects the net position post Wholesale Revenue Forecast Incentive Mechanism (WRFIM) pass back of £12m for 2018/19

Full Year Results 2018/19

11

Pennon Financial performance underpinned by efficiency initiatives delivering across the Group

SWW Totex savings

K6 to date

£237m c.£27m

SWW/BW Synergies

K6 in total

Group efficiencies

From 2019

c.£17m p.a.

• c.£17m p.a. secured in line with expectations

Group wide efficiencies

• £237m cumulative Totex efficiencies – on track to deliver c.£300m
• ver K6
• Underpins SWW efficient cost base leading into K7

Sector leading Totex outperformance for South West Water

• c.£27m secured since integration with SWW
• Maintaining industry leadership in customer service

Bournemouth Water synergies on track

Full Year Results 2018/19

Pennon Non-underlying items

12

2018/19 £m 2017/18 £m Derivatives 5.8 (2.4) GMP equalisation (3.0)

• Interserve provision

(22.7)

• Greater Manchester reset
• 6.5

Profit Before Tax (19.9) 4.1 Tax on non-underlying items 5.0 3.4 Profit After Tax (14.9) 7.5 Interserve provision

• Interserve provision reflects

assessment of credit loss – IFRS 9

• Considered publically available

information

• Further £22.7m in 2018/19

recognising credit risk associated with outstanding recoverable

• Total provision £28.7m against

£72m gross receivable Guaranteed Minimum Pension (GMP) equalisation

• £3.0m pension charge

Derivatives

• Movements in fair value of long-

dated derivatives associated with South West Water 2040 bond

A B C A B C

Full Year Results 2018/19

Corporation Tax A responsible approach to tax – managing tax efficiently for the benefit of customers and shareholders

13

2018/19 £m 2017/18 £m Current Year Current Tax 32.4 29.7 Deferred Tax 23.2 20.7 55.6 50.4 Prior Year Current Tax (3.0) (3.6) Deferred Tax (9.9) (2.4) (12.9) (6.0) Total Underlying Tax Charge 42.7 44.4 Non-underlying items(1) (5.0) (3.4) Total Statutory Tax Charge 37.7 41.0 Tax charge reflects investment profiles

• Current year current tax effective rate of

11.6% (2017/18 11.5%)

• Lower than the UK headline rate of 19%,

reflecting capital allowances (including ERFs)

• First water and waste infrastructure

business to secure accreditation

• Demonstrates transparency and best

practice across the Group

• Total tax contribution(2) £281m for 2018/19

(1) £5.5m current tax credit and (£0.5m) deferred tax charge (2) Includes landfill tax collected and borne, VAT, business rates, employment taxes, corporation tax, fuel excise duty, carbon reduction commitment, environmental payments and climate change levy

Full Year Results 2018/19

100 200 300 400 500

2015/16 2016/17 2017/18 2018/19 2019/20

SWW Viridor

£m

2018/19 £m 2017/18 £m Total Water 154 184 Total Viridor 242 213 Total PWS/Other

• 1

Total 396 398

Group Capex(1) Capital investment Continued investment for growth across the Group

14

Key elements of Group expenditure in 2018/19

• Completion and commissioning of Mayflower WTW
• Network resilience improvements
• Completion of Dunbar and Beddington, expansion of

Glasgow

• Construction of Avonmouth

(1) Including construction spend related to service concession arrangements, capitalised interest (£15.2m in 2018/19), ERF maintenance capital expenditure net of amounts subject to legal contractual process.

Full Year Results 2018/19

£m

50 100 150 200 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Growth Capex

• Investment in committed growth projects driving increased earnings

–

More than doubled 2014/15 to 2018/19

–

Anticipated to increase further as a result of committed expenditure

• Growth capex in near term – completion of Avonmouth and investment in recycling

–

New industry leading plastics recycling facility to contribute from 2020/21 Investment delivering growth

2014/15 2015/16 2016/17 2017/18 2018/19 2021/22 PBT EBITDA Adj EBITDA

Growth capex driving increased earnings Viridor focus on Recycling and Residual Waste

15

Full Year Results 2018/19

Growth capex driving increased earnings South West Water – RCV(1) growth over 10 years

16

• Significant K7 capital investment

planned – above K6 actual expenditure

• 10% nominal growth in RCV in K7

(c.28% over 10 years)

• c.£300m Totex outperformance for K6
• Opportunity for continued Totex
• utperformance in K7

Continuing investment in our assets and services

(1) Nominal shadow RCV (Regulatory Capital Value) adjusted for outperformance over the 2015-20 period, based on forecast RPI consistent with the 2019 Draft Determination

Full Year Results 2018/19

Net Debt Movements Robust cash inflow from operations

(2,801.5) 649.0 (32.2) (47.0) (137.9) (29.2) (5.8) (162.0) (54.8) (384.5)

Net Debt 1-Apr-18 Cash inflow from operations Pension contributions Other movements Other taxes Corporation tax Net interest paid Hybrid coupon payment Interim & Final 2017/18 dividend Runcorn I acquisition Capital payments Net Debt 31-Mar-19

(3,079.5) (73.6)

Robust cash inflow from operations supporting:

• Significant investment across the Group
• Runcorn I acquisition

17

(1) Includes 2017 PMB derivative unwind settlement and non-cash movement in Euro loan due to exchange rates and index linked debt (2) Other taxes include business rates, employers national insurance, fuel excise duty, carbon reduction commitment, environmental payments, climate change levy and external landfill tax (3) Includes net of proceeds from sale of property, plant and equipment and spend on service concession arrangements (before amounts subject to legal contractual process)

(1) (2) (3)

£m

Full Year Results 2018/19

Balance Sheet Sustainable funding position underpinning investment

at 31 March 2019 £3,080m Group Net Debt Profile

• Diversified funding mix, underpinned by finance

leases with long maturities

• Average maturity for the Group 18 years

South West Water Funding

• c.25% index-linked – advantageous position

aligned with Ofwat notional company, reducing exposure to RPI/CPIH transition risk

• Reflects 2017

perpetual capital securities (hybrid) in the Group’s capital structure, redeemable in 2020/21

Stable Gearing

64.7%

63.1% at 31 March 2018

58.9%

60.3% at 31 March 2018

Group Net Gearing(1) Water Business Debt / RCV(2)

• SWW – aligned

with Ofwat notional efficient level

Floating

£576m

19%

Index-Linked

£568m

18%

Fixed

£1,936m

63%

• Headroom for

investment c.£725m

18

(1) Net borrowings / (equity + net borrowings) (2) Based on Regulatory Capital Value (RCV) at March 2019 and regulatory net debt

Full Year Results 2018/19

19

Balance Sheet Sustainable financing delivering efficient financing costs

• £110m Plc EIB(1) 19 year loan
• £325m Plc loan facilities
• £105m RCFs(1) (Plc and

SWW)

• £60m green long funding

finance leases Sustainability linked financing £600m Other financing agreements £230m

• Provides funding for Viridor’s committed growth projects and SWW’s regulatory capital programme into K7
• Supporting capital investments in
• ur environmentally sustainable

projects

• Linked to Pennon Group’s annual

ESG performance

• Linked to SWW sustainability KPIs

Financing secured in 2018/19 of £830m £1,170m cash & committed facilities (31 March 2018 £1,171m)

(1) EIB – European Investment Bank, RCF – Revolving Credit Facility

• £100m RCFs
• £100m loan facilities
• £30m long funding finance

lease

Full Year Results 2018/19

20

Finance Costs Delivering efficient financing – mitigating risk

• Aligned to Ofwat’s PR19

methodology

• Rolling 10 year hedges for new

debt in K7

• Embedded debt matched to

regulatory delivery period

• c.50% of South West Water

floating rate net debt hedged for the next regulatory period

Hedging activity

1.00% 1.20% 1.40% 1.60% 1.80% Feb-2018 Apr-2018 Jun-2018 Aug-2018 Oct-2018 Dec-2018 Feb-2019 Apr-2019

10 Year 7 Year 5 Year Hedging activity

Swap rates

(1) Before non-underlying items – see slide 12

£83.2m

£74.5m 2017/18

2018/19 net finance costs(1)

3.6%

3.7% 2017/18

3.5%

3.5% 2017/18

2018/19 SWW interest rate 2018/19 Group interest rate Interest rate hedging for K7

Full Year Results 2018/19

Dividend Growth Growth driving attractive dividend sustainability

21

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Note: Dividend in pence per share

+9.3% +5.6% +4.9% +6.5% +7.3% +7.6% +7.1% +7.3% 38.59p 35.96p 33.58p 31.80p 30.31p 28.46p 26.52p 24.65p 22.55p

• Recommend final dividend of 28.22p, up +6.0%
• Full Year dividend of 41.06p, up +6.4%(1)
• Viridor earnings supporting growth in dividends
• Dividend reinvestment plan (DRIP) available

+6.4% 41.06p

Established 10 year sector leading policy of RPI +4%

(1) 2018/19 final dividend based on March 2019 RPI of 2.4%

Final dividend Interim dividend

12.84p 28.22p

Full Year Results 2018/19

Chris Loughlin Group Chief Executive

Full Year Results 2018/19

Viridor

Full Year Results 2018/19

Viridor Bringing resources to life

• Strong delivery in 2018/19 – platform for continued growth
• Excellent track record, successful diversification and growth –

capitalising on UK waste strategy

• Confidence in long-term market outlook

–

Government Resources & Waste Strategy aligned to Viridor strategy

–

Plastics on fast-track driven by ‘Blue Planet’ effect

–

ERF market fundamentals remain strong

–

Landfill continued feature of UK waste

• Viridor focus on de-risked infrastructure model, investment backed

by index-linked long-term contracts

–

Successful execution of ERF portfolio – options being developed for 3 further ERFs

–

Market opportunities in recycling processing assets emerging – akin to ERF model

24

Full Year Results 2018/19 2017/18 2018/19

Outperformance Peterborough Runcorn II Runcorn I Trident Park Ardley Exeter Lakeside

• Portfolio continuing to deliver in excess of base case

–

15% increase in permitted capacity approved at Runcorn I & II

• Portfolio EBITDA margin c.60%
• High availability across fleet

–

Availability >90% for third consecutive year

–

Top quartile availability for the industry(1)

25

(1) Based on Tolvik analysis (2) Adjusted EBITDA of sites operating for the full year, includes share of joint ventures

Viridor – Residual Waste ERF portfolio – continued outperformance in 2018/19

Base case

Outperforming base case expectations(2)

Full Year Results 2018/19

Viridor – Residual Waste ERF market fundamentals remain strong

• Conservative assumptions – based on third party analysis

–

Combustible residual market - suitable for ERF treatment, remains robust

–

DEFRA(1) analysis gives a 10mT range depending on speed of implementation of the strategy

(1) DEFRA 2018 estimates (2) Net of RDF export forecast

26

Source: Tolvik, Defra, SEPA, NRW, MSW and Viridor analysis

• 5

10 15 20 25 30 35

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

UK Combustible Residual Waste Market Mt

ERF Capacity (others) Viridor ERF Throughput Capacity Gap No New Policy - DEFRA Potential Residual Waste with Consistent Collections - DEFRA

Viridor capacity gap forecast to be c.7mT(2) in 2035

Full Year Results 2018/19

Viridor – Residual Waste Growth from existing ERF portfolio

• Additional capacity at Glasgow
• Acquired additional stake in

Runcorn I joint venture

• Glasgow, Beddington and Dunbar

in operational ramp up

• Avonmouth on track for

contribution in 2020/21

–

Secured additional 120kt pa from West of England Partnership

–

85% contracted

• Targeting 3-5% capacity

improvement across the portfolio

• Developing options for new ERFs

27 2018/19 2020/21

EBITDA

Glasgow Runcorn I Ramp up Avonmouth Share of JV EBITDA IFRIC 12 Interest Receivable

Build out nearing completion

£198.9m Adjusted EBITDA

Full Year Results 2018/19

Viridor – Residual Waste Longer term value from landfill

• Optimising long-term value from landfill

–

Sale of another closed site for alternative use – mitigating long term liability (H1 2019/20)

–

Responsible operator, managing our legacy

–

Highly engineered and controlled operations

• Long-term capacity gap for residual waste in the UK

–

Demand for landfill remains strong, particularly in targeted geographies

–

New cells where commercially attractive

–

Two further closures planned and one site to reopen in 2019/20

–

Opportunities being assessed at other mothballed sites

• Securing reliable generation from landfill gas

–

Lower decline in electricity volumes than previous year (c.5%)

–

Improving longer term yields by engine optimisation strategy and preventative maintenance programmes

28

Full Year Results 2018/19

Viridor Future growth opportunities

• Developing options for up to 3 new ERFs

–

Continued forecast under-capacity for residual waste

–

Attraction determined by availability of long-term contracts in line with our model

• Developing Energy Parks

–

Further opportunities for heat offtake and private wire for electricity supplies being developed

• Developing options for plastics recycling

–

Government policy and market forecasts support investment in plastics recycling facilities

–

2 further options being developed

–

Cost advantage of co-location with ERF Energy Park

29 >1.0%pa 0.8% - 1.0%pa 0.6% - 0.8%pa <0.6%pa

York N East N West E Mid W Mid East S West S East London

Regional household growth 2016 - 2035

Source: Tolvik

Full Year Results 2018/19

Viridor – Energy Parks Leveraging value from Viridor asset base

30

Further opportunities under development at ERFs and landfill sites

–

Landfill gas private wire to Tarmac cement works

–

Private wire power supply from ERF to SWW

–

ERF heat connection to council depot Beddington Dunbar Runcorn Beddington Peterborough

–

Heat and power off-take to Inovyn Exeter Avonmouth

–

New Viridor plastics recycling facility

–

Solar array at landfill sites Westbury & Broadpath

Modest energy park capital requirements enhances profitability by c.5-10% –

ERF and landfill gas heat off-take into Sutton Decentralised Energy Network for community heating

–

Opportunity to supply co-located data centre

Full Year Results 2018/19

Tonnes of recyclable plastic currently collected in the UK(2) UK target for recycled packaging

Viridor – Recycling Recycling market opportunities in plastics processing

• Government strategy supports investment in new recycling

infrastructure

–

Tax on plastic packaging containing <30% recycled content

–

Responsibility of 100% recycling costs on producers

–

Boosting demand, underpinning market for plastic recyclate

• Brand leaders moving early

–

Public declarations on recycled content

• UK capacity

–

Two thirds of plastic collected for recycling in the UK is currently exported Plastic packaging currently recycled

1 million

46% 75%

Plastic packaging supply chain signed UK Plastics Pact

80%

31

(1) DEFRA 2017 provisional figures (2) National packaging waste database

(1)

Full Year Results 2018/19

Viridor – Recycling New industry leading plastics recycling facility

• Industry leading attractive investment – leveraging our plastics

skill set

–

Co-located at Avonmouth ERF using energy and heat off-takes

–

Energy Park concept gives significant cost advantage

–

£65m investment in de-risked infrastructure model, backed by index-linked contracts

–

Secured ¾ of inputs and ½ of plastic offtake

–

IRR(1) hurdle of 15% – business case 7 years, payback <4 years

–

80kt pa capacity representing 8% of current market requirement

–

Handles multi-stream(2) plastics and outputs pellets directly for manufacture

32

(1) Real, post-tax Internal Rate of Return (2) Three plastics types - PET, HDPE and polypropylene

33

South West Water

Full Year Results 2018/19

South West Water Delivering high quality services – solid platform for next period – K7

• Resilience to weather extremes

–

Hottest summer on record and ‘Beast from the East’ ‘freeze and thaw’

–

22nd consecutive year without water restrictions

–

Leakage target met every year

–

Supply interruptions reduced – lowest ever level

• Sector leading customer service

–

Highest ever customer satisfaction

–

SIM at 88 for both regions

–

Ranked 2nd in industry for quality of service(1)

–

Industry leading support to customers in vulnerable circumstances

34

(1) Ranked 2nd water and sewerage company (WASC) for 2018/19 Customer Experience Survey (CES) quality score, a key element of SIM (Service Incentive Mechanism)

Full Year Results 2018/19

South West Water Sector leading outperformance in this period – K6

• Consistently highest RORE delivered – 11.8%

–

Totex: £237m of £300m target delivered to date

–

ODIs: net cumulative reward, £11m to date

–

Financing: continued low effective interest rate, £130m to date

• Outperformance delivered in each area
• Very strong foundation for next period

35

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%

Pennon SWW Water Sector K4 (2005-10) K5 (2010-15) K6 (2015-20)

Effective average interest rate

Full Year Results 2018/19

South West Water Sector leading outperformance – next period – K7

• Highest outperformance potential next period

–

Confidence in outperformance in all areas

• Totex allowances consistent with current period

–

Allowance higher than current forecast spend

• Financing outperformance

–

Efficient financing structure already in place

–

Consistently delivered one of the lowest effective interest rates

• ODIs – mixture of common and bespoke performance

measures

–

Two thirds common performance ODIs currently upper quartile/above industry average

–

Bespoke ODIs proposed/designed by SWW

36

Sector leading company outperformance

Full Year Results 2018/19

South West Water

K7 Draft Determination – ODI outperformance potential for K7

BESPOKE ODIs Unique rewards for SWW

Taste, smell and colour contacts Water & wastewater operational contacts resolved first time Water restrictions External sewer flooding Odour contacts from WWTW Sewer blockages Compliance with sludge standards Resilience (water & wastewater) Biodiversity – enhancement Bathing water quality Abstraction incentive mechanism Number of pollution incidents (water Cat 1-3) Descriptive compliance

COMMON ODIs Current average & upper quartile performance

Internal sewer flooding Duration of supply interruptions Leakage Per capita consumption Water quality compliance

AREAS OF FOCUS

Sewer collapses Environmental performance / Pollution incidents Unplanned outage at WTW Numeric compliance Number of mains bursts CMex / DMex

37

Strong platform for ODI performance in K7

Full Year Results 2018/19

South West Water Our plan “setting the standard for the industry to meet”

Board pledges – working in the public interest

• Making bills affordable for all

–

Lower in cash terms in 2025 than in 2010

–

Eliminate water poverty by 2025 by extending support measures

–

Ofwat praised our plan for “high quality customer engagement and affordability”

• Operational and service leadership

–

Upstream thinking project improving 80% of catchments

–

15% reduction in leakage

–

Innovative solutions – Alderney and Knapp Mill water treatment works

–

Achieve net zero carbon emissions by 2030 Giving customers a stake and say

• Ambitious voluntary sharing with customers

–

First of its kind, innovative customer share ownership scheme

–

Quarterly public meetings and customer AGMs

38

Deliver efficiency, keeping bills as low as possible and address water poverty Provide outstanding customer service Deliver environmental leadership Empower our customers by giving them a stake and say Deliver our promises, supporting the regional economy and our communities

Full Year Results 2018/19

South West Water Fast start to next period

• Key partnerships in place

–

Strategic consultants and capital delivery partners confirmed

–

Operational partners in place

–

Other delivery relationships in place including Wildlife Trusts, customer groups and charities

–

Exeter University innovation programme

• RSI(1) Transformation project already underway – Ofwat praised

“setting the standard for others to reach”

• Sustainable Financing Framework embedded
• Preparation for Isles of Scilly transfer well advanced

39

(1) RSI – Resilient Service Improvement

Full Year Results 2018/19

Pennon Bringing resources to life

Delivered strong results in a responsible and sustainable way Growth driving attractive dividend sustainability

40

• Uniquely achieved fast-track status in successive price reviews
• Continuing sector leadership throughout this period – cumulative RORE(2) 11.8%
• Operational resilience despite extreme weather
• Confidence in continued outperformance next period – outperformance in all areas

South West Water

• Focus on de-risked infrastructure model, backed by index linked long-term contracts
• Successful ERF(1) build out and operations >90% availability
• Confidence in long-term market outlook – growth opportunities
• Investment in plastics recycling

Viridor

(1) ERF – Energy Recovery Facility (2) RORE – Return on Regulated Equity - see slide 35 for further details

Full Year Results 2018/19

41

Questions

Full Year Results 2018/19

Appendix Pennon Appendix

Full Year Results 2018/19

Pennon Underlying Income Statement

43

Underlying(1) 2018/19 £m 2017/18 £m Change Revenue 1,478.2 1,393.0 +6.1% EBITDA 546.2 509.6 +7.2% Adjusted EBITDA(2) 592.7 562.3 +5.4% Depreciation and Amortisation (195.2) (185.7) (5.1%) Operating Profit 351.0 323.9 +8.4% Net Interest (83.2) (74.5) (11.7%) Share of JV Profit After Tax 12.4 9.4 +31.9% Profit Before Tax 280.2 258.8 +8.3% Taxation (42.7) (44.4) +3.8% Profit After Tax 237.5 214.4 +10.8% Profit attributable to non-controlling interest(3) 0.3 0.2 +50.0% Profit attributable to perpetual capital security holders (8.6) (20.2) +57.4% Profit attributable to ordinary shareholders of the parent 229.2 194.4 +17.9% Add back deferred tax 13.3 18.3 +27.3% Adjusted Earnings(4) 242.5 212.7 +14.0% Adjusted Earnings Per Share(4) (p) 57.8 50.9 +13.6%

(1) Before non-underlying items, see slide 12 (2) Underlying EBITDA plus share of Joint Venture EBITDA and IFRIC 12 interest receivable (3) Reflects the impact of the non-controlling interest in Pennon Water Services (4) Adjusted earnings and EPS before deferred tax, non-underlying items and proportionately adjusted for the return due on the perpetual capital securities

Full Year Results 2018/19

Pennon Group 2018/19 Change Capex Passed peak of committed ERF capex. Growth capex in near term principally reflects completion

• f Avonmouth and investment in recycling

£396m Dividend Reflecting policy of RPI + 4% annual increase in dividend 41.06p per share Tax rate Underlying effective tax rate lower than UK headline rate of 19% reflecting capital allowances (including ERFs). 11.6% IFRS 16 Minimal impact on profit before tax

• South West Water

Revenue Impact of net tariff increases and lower metered volumes reflecting 2018 extreme summer weather £581m Opex 2018/19 includes costs associated with extreme weather. Continued efficiency into 2019/20 £214m Totex efficiency On track to deliver c.£300m over K6 £237m cumulative RORE Continued momentum for delivering outperformance in all areas 11.8% cumulative IFRS 16 Impact of new standard applicable in 2019/20. Minimal impact on profit before tax. Approximate impact on balance sheet and income statement lines as follows:

• £32m Gross assets; £34m Gross liabilities
• £2m EBITDA; £1m Depreciation; £1m Interest

N/A Viridor Revenue Lower following impact of cessation of Greater Manchester Contract and lower IFRIC 12 construction revenue, partially offset by ERF ramp up and full year operations at new ERFs £853m EBITDA Impact of ERF ramp up £179m IFRS 16 Impact of new standard applicable in 2019/20. Minimal impact on profit before tax. Approximate impact on balance sheet and income statement lines as follows:

• £76m Gross assets; £85m Gross liabilities
• £11m EBITDA; £8m Depreciation; £3m Interest

N/A

Pennon 2019/20 technical guidance

44

Full Year Results 2018/19

45

Pennon Group EBITDA

509.6 31.1 9.7 1.7 1.2 (0.1) (3.5) (3.5) 546.2 2017/18 ERFs SWW revenue Plc, PWS and

• ther

Viridor contracts, collections &

• ther, and

indirect costs Recycling Landfill and landfill gas SWW cost impacts 2018/19

£m

Full Year Results 2018/19

Adjusted EPS Calculation 2018/19 £m 2017/18 £m Statutory Profit Before Tax 260.3 262.9 Adjusted for: Non-underlying Items (pre-tax) 19.9 (4.1) Current Tax (29.4) (26.1) Minority Interest(1) 0.3 0.2 2013 Hybrid (post-tax)

• (15.7)

2017 Hybrid (8.6) (4.5) Profit for Adjusted EPS calc. 242.5 212.7 Average Number of Shares (m) 419.6 417.9 Adjusted EPS 57.8 50.9 Statutory EPS Calculation 2018/19 £m 2017/18 £m Statutory Profit Before Tax 260.3 262.9 Adjusted for: Tax (current and deferred) (37.7) (41.0) Minority Interest(1) 0.3 0.2 2013 Hybrid (post-tax)

• (15.7)

2017 Hybrid (8.6) (5.8) Profit for Statutory EPS calc. 214.3 200.6 Average Number of Shares (m) 419.6 417.9 Statutory EPS 51.1 48.0 Hybrid (Perpetual Capital Securities) movements

• 2013 Hybrid – reflects the post-tax charge of redeeming the 2013 hybrid, in March 2018, at 103% of par value plus accrued

periodic returns

• 2017 Hybrid – adjusted EPS reflects a proportionate adjustment for the annual periodic return

Pennon Adjusted EPS reconciliation

46

Full Year Results 2018/19

Pennon Group capital expenditure reconciliations

47

Group Capital Investment (Slide 14) 2018/19 £m 2017/18 £m Viridor 210.2 192.8 ERFs 176.2 158.0 Recycling 8.9 3.3 Landfill and Landfill Gas 10.3 14.5 Contracts and Collections 6.9 6.1 Other 7.9 10.9 South West Water 154.0 184.2 Clean Water 77.2 95.0 Waste Water 76.8 89.1 Other Group 0.2 1.0 Group Capital Additions 364.4 378.0 IFRIC 12 Additions(1) 31.5 20.2 Capital Investment 395.9 398.2 Group Capital Payments (Net debt movements slide 17) 2018/19 £m 2017/18 £m Viridor 210.2 192.8 South West Water 154.0 184.2 Other Group 0.2 1.0 Group Capital Additions 364.4 378.0 Capital creditor (increase)/decrease (inc. non-cash items) (6.2) 15.8 Grants and Contributions (2.2) (2.2) Proceeds from sale of PPE (6.3) (10.6) IFRIC 12 Payments(2) 34.8 82.9 Total Adjustments 20.1 85.9 Capital Payments 384.5 463.9

(1) Capital additions on IFRIC 12 ERF capital assets (before amounts subject to legal contractual process) (2) Capital payments on IFRIC 12 capital assets gross of amounts subject to legal contractual process

Full Year Results 2018/19

Pennon Diversified funding sources

48

As at 31 March 2019 £m Finance Leasing(1) 1,560 Bank Bilaterals 452 European Investment Bank Loans 401 Index-Linked Bonds 435 Fixed Rate (SWW 2040) Bond 134 Private Placements 668 Total Gross Debt 3,650 Less: Cash/Liquid Investments (570) Net Borrowings 3,080

(1) Includes £133m of index-linked finance leasing

• Finance leasing provides a significant

amount of long-dated funding

Full Year Results 2018/19

Pennon Impact of low yields at 31 March 2019

49

Fair value of non-current debt compared to book value As at 31 March 2019 As at 31 March 2018 £m Book Value Fair Value Difference Book Value Fair Value Difference Finance Leases 1,497 1,432 65 1,477 1,350 127 Bank and Other Loans (Including EIB) 817 792 25 520 485 35 Other Bonds and Placements 1,185 1,381 (196) 1,180 1,346 (166) Total 3,499 3,605 (106) 3,177 3,180 (3)

• Fair value movements partly reversed post year end as yields increased
• Hedging undertaken to manage future interest risk taking advantage of a falling yield environment

‒

c.50% of South West Water floating rate net debt hedged as yields were falling towards the year end

‒

Locks in benefit of low yields

Full Year Results 2018/19

Pennon Impact of low yields at 31 March 2019 – partly reversed post year end

50

Pensions £m Opening deficit 31 March 2018 49.5 Change in actuarial financial assumptions 75.8 Other actuarial changes recognised in SOCI (58.6) Other movement (5.9) Closing deficit 31 March 2019 60.8 Derivative valuation (£m) 2018/19 2017/18 Interest rate cash flow hedges (14.6) (9.4) Interest rate fair value hedges 75.8 72.2 Foreign exchange hedges 0.1 3.0

• Respective interest rate hedges have increased in

value during the year, due to a lower interest rate yield environment at 31 March 2019. Partly reversed post year end as yields increased

• Foreign exchange movements due to milestones

completed on ERF build programmes

• c.£76m increase in deficit from change in actuarial

financial assumptions due to lower yields reducing discount rate. Partly reversed post year end as yields increased

• Other actuarial changes reduce deficit with latest

actuarial data reducing life expectancy assumptions

• Other movements include a c.£13m deficit recovery

payment and £3m non-underlying charge resulting from GMP equalisation ruling

Full Year Results 2018/19

51

Pennon Pensions

Scheme deficit is broadly comparable with 31 March 2018 despite liabilities increasing due to lower bond yields, partly

• ffset by updating to the latest CMI mortality tables

31 March 2019 £m 31 March 2018 £m Pension schemes’ assets 934 898 Pension schemes’ liabilities 995 948 61 = 51 net of tax 50 = 41 net of tax

• The aggregate pension schemes’ deficit has

increased in the year to 31 March 2019 by £11m from £50m to £61m

• This represents a net deficit of

c.2%of Group’s market capitalisation at 31 March 2019

• Following 2016 actuarial valuation –

contributions remain in line with 2014 Final Determination allowances

• For the Group’s principal pension scheme

the recovery plan includes annual deficit contributions up to 2022, with £13m paid in March 2019. South West Water accounts for around 80% of the principal scheme

Full Year Results 2018/19

2018/19 £m 2017/18 £m Net interest charge: (83.2) (74.5) Add: capitalised interest (15.2) (17.0) Less: notional interest payable(2) 12.5 11.8 Add: interest receivable on service concession contracts (14.6) (13.8) Add: interest receivable on shareholder loans to JVs (5.3) (7.9) Net interest for average rate calculation: (105.8) (101.4) Split between: Interest payable (94.9) (86.9) Capitalised interest payable (15.2) (17.0) Other finance income 3.6 2.5 Net interest payable: (105.8) (101.4) Average rate of interest 3.6% 3.7% Net interest cover 4.1x 4.2x

Pennon Net interest analysis(1)

52

Decrease reflects impact of Greater Manchester Increase reflects higher Group borrowings Efficient, effective interest rate

• Group – 3.6%
• South West Water – 3.5%

A A B B

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%

Pennon SWW Water Sector K4 (2005-10) K5 (2010-15) K6 (2015-20)

(1) Before non-underlying items as set out in slide 12 (2) Includes pensions net interest and discount unwind on provisions

Full Year Results 2018/19

Pennon

Significant energy generation

(1) Includes % share of joint ventures at Lakeside and Runcorn (2) This includes 4.61GWh of output from two private wire schemes - Polmaugan (Restormel) and Wadebridge Renewable energy network (Nanstallon)

Pennon hedging The Group continues to maintain its net hedged position in accordance with Group policy - the Group is c.95% hedged for 2019/20, c.55% for 2020/21 and c.20% for 2021/22

30 40 50 60 70

Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019

£/MWh

UK Power Forward Seasons

S 19 W 19 S 20 W 20

• Total Group energy generation of 1.65TWh in 2018/19

–

11 ERFs(1) – 1.2TWh

–

25 Hydro Turbines – 11.4GWh

–

52 Solar PV installations(2) – 10.2GWh

–

6 CHP – 6.3GWh

–

1 wind turbine – 0.1GWh

–

Anaerobic digestion – 2.5GWh

–

Landfill gas – 418.8GWh

• Utilising existing grid connections at landfill sites

–

Continuing to identify opportunities to maximise value from our grid connections

• Portfolio management strategy

–

The portfolio management team continues to actively manage the Group net energy generation position in liquid markets

–

The natural hedge within the Group is maintained at around a third of generation

–

Forward hedges have been put in place in the liquid market to Winter 2021

53

Year End Results Paper 2018/19 (Internal)

2018/19 £m 2017/18 £m Revenue 173.7 165.9 EBITDA 1.0 1.0 Depreciation and Amortisation (0.7) (0.6) Operating Profit 0.3 0.4 Net Interest (1.9) (1.5) Profit Before Tax (1.6) (1.1)

Year End Results 2018/19 Pennon Water Services(1) financial highlights

>160,000

Customer accounts

c.11,700(2)

New accounts won since market

• pening

Growing in a competitive market

• 20% of revenue secured in national

tendered contracts and additional contracts for SMEs, with good retention track record Operational focus on delivering future cost base efficiency

• Focusing on balancing customer mix

between Nationals and SME customers

• Reducing unit cost of supply

(1) 80:20 venture with South Staffordshire Group (2) As at 31 March c.11,785 new accounts, net growth c.1,955

54

Full Year Results 2018/19

Viridor

Appendix

Full Year Results 2018/19 2017/18 ERFs operational ERFs construction revenue Recycling Landfill Gas Contracts, Collections & Other Landfill 2018/19

785.7 69.7 12.0 5.9 852.7 (13.7)

Viridor Revenue

(6.4) (0.5)

£m

56

Full Year Results 2018/19 2017/18 ERFs Indirect costs Recycling Contracts, Collections & Other Landfill Landfill Gas Share of JV EBITDA and IFRIC 12 interest receivable 2018/19

202.9 31.1 1.5 (0.1) 225.4 (2.7)

Viridor Adjusted EBITDA

(0.8) (0.3)

£m

57

(6.2)

Full Year Results 2018/19

(1) Capital cost excludes capitalised interest (2) Joint ventures economic interest (Lakeside 50%: Runcorn I 75% from December 2018, 37.5% previously) (3) Planning constraints relaxed at Oxford, Cardiff and Runcorn I & II combined allowing up to 327,000, 425,000 and 1,100,000 tonnes of waste respectively (4) Plus heat 51MWth (5) Includes increased capacity expenditure and tonnage throughput (6) Plus heat 17MWth

Site Capital Cost (1) Gross capacity Status Base load municipal contract Actual/expected commissioning £m Tonnes (000) Electricity MWe Lakeside(2) 150 410 38 Fully operational Merchant Commissioned Exeter 47 60 3 Fully operational Exeter Commissioned Oxford (Ardley)(3) 204 300 24 Fully operational Oxfordshire Commissioned Cardiff (Trident Park)(3) 207 360 28 Fully operational Gwyrdd (SE Wales) Commissioned Runcorn I(3) 236 375 28(4) Fully operational Greater Manchester Commissioned Runcorn II(3) 216 375 41 Fully operational Merchant Commissioned Peterborough 72 80 7 Fully operational Peterborough Commissioned Glasgow(5) 176 250 15 Operational ramp-up Glasgow Commissioned Dunbar 177 300 23(6) Operational ramp-up Clyde Valley Commissioned Beddington 199 275 26 Operational ramp-up South London Commissioned Avonmouth 252 320 34 Construction in progress Somerset 2020/21

Grand Total 3,105 267

Viridor ERFs (including Joint Ventures)

58

Full Year Results 2018/19

£m Cumulative spend at 1 April 2018 Capital investment in 2018/19 Cumulative spend to 31 March 2019 Remaining spend to completion Amounts subject to recovery(2) Total project spend Original planned project spend ERF projects in operation Exeter 47

• 47
• 47

47 Oxford (Ardley) 204

• 204
• 204

210 Cardiff (Trident Park) 207

• 207
• 207

223 Peterborough 72

• 72
• 72

72 Runcorn 216

• 216
• 216

216 Total in operation 746

• 746
• 746

768 ERF projects under construction in 2018/19 Glasgow 238 35 273

• (97)

176 176(3) Dunbar 133 35 168 9

• 177

177 Beddington (South London) 157 23 180 19

• 199

199 Avonmouth 82 90 172 80

• 252

252 Total including under construction 1,356 183 1,539 108 (97) 1,550 1,572 Peterborough financed by local authority (72)

• (72)
• (72)

(72) Total impact on Net Debt 1,284 183 1,467 108 (97) 1,478 1,500

Viridor ERF capital expenditure(1) – Efficient investment to deliver growth

59

(1) Excluding capitalised interest, £12.4m in 2018/19 and £98.6m cumulatively (2) Incremental costs – contractually entitled to recover under certain circumstances. Gross value before credit risk provision (3) Includes £21m additional spend for increased capacity

Full Year Results 2018/19

Viridor Glasgow ERF (GRREC)

60 Contractual recovery from ICL net

• f credit provision

Incremental construction cost – non-conformances £97m Planned construction cost £155m

(1) £6m recognised in underlying earnings in previous years, £23m recognised as a non-underlying charge in 2018/19 (2) Successful recovery of the contingent asset would result in an immediate recognition of income

Construction cost related to additional throughput £21m Contingent asset(2) £ 25m

Construction spend £ 273m Benefit to Viridor

Recovered from planned operating income over life of contract Potential further recoveries related to construction Recovered from incremental income related to increased throughput over life of contract Net contractual recoverable from ICL £43m

Gross contractual recoverable from ICL £72m Provision(1) £(29m)

Full Year Results 2018/19

Viridor Joint venture performance

2018/19 £m Runcorn I Tranche 1(1) Runcorn I Tranche 2(2) Runcorn I Total Viridor Laing(3) Lakeside Total Share of JV PAT 2.5 0.8 3.3

• 9.1

12.4 Interest on Shareholder Loans 3.6 0.6 4.2

• 1.1

5.3 Shareholder Loans 30.6 34.4 65.0

• 7.7

72.7 Share of non-recourse net debt

• 25.5

25.5 Share of EBITDA 10.5 2.7 13.2

• 18.7

31.9 2017/18 Share of JV PAT 2.2

• 2.2

(0.1) 7.3 9.4 Interest on Shareholder Loans 4.1

• 4.1

2.6 1.2 7.9 Shareholder Loans 32.5

• 32.5
• 8.2

40.7 Share of non-recourse net debt

• 31.6

31.6 Share of EBITDA 14.5 0.0 14.5 7.5 16.9 38.9

61

(1) Original investment in TPSCo joint venture (2) Additional investment in TPSCo joint venture acquired in December 2018, recorded at fair value on acquisition (3) Viridor Laing joint venture disposed on 30 September 2017 as part of Greater Manchester contract reset

Full Year Results 2018/19

South West Water Appendix

Full Year Results 2018/19

571.3 17.4 (12.0) 3.7 (1.2) 5.6 (3.8) 581.0 2017/18 Tariff increases WRFIM¹ New connections Other Revenue Increased customer demand (net of leak allowance) Meter optants 2018/19

South West Water Revenue

63

(1) WRIFM - Wholesale Revenue Forecast Incentive Mechanism

£m

Full Year Results 2018/19

360.9 9.7 4.8 (6.0) (4.7) 2.4 367.1 2017/18 Revenue Growth Efficiencies & other cost savings Cost increase incl. inflation Adverse weather Bad debt charge 2018/19

South West Water EBITDA

64

£m

Full Year Results 2018/19

South West Water

2018/19 ODI performance levels – cumulative net reward position for K6

(1) Good performance - in line with committed performance (or within appropriate tolerances) for 2018/19 (2) End of AMP measure only, on track to deliver with no penalty assumed (3) ODI performance in 2018/19 of £4.1m net reward. £4.9m net reward will be recognised at the end of the regulatory period, with £0.8m net penalty which may be reflected during the regulatory period. Of the cumulative net reward of £11.3m, £14.4m will be recognised at the end of the regulatory period and £3.1m net penalty which may be reflected during the regulatory period

GOOD PERFORMANCE(1)

Water quality standard Taste, smell and colour contacts Water operational contacts resolved 1st time Water restrictions Supplies interrupted due to flooding External & Internal sewer flooding Supply interruptions Bathing water quality Water & waste asset reliability Sustainable abstractions Leakage level Descriptive compliance Water Cat 1&2 pollution incidents

IMPROVING PERFORMANCE

Wastewater numeric compliance(2) Service Incentive Mechanism (SIM)(2)

AREAS OF FOCUS

Wastewater operational contacts resolved 1st time Wastewater pollution incidents Cat 3&4 Odour contacts

Cumulative ODI outperformance net reward: £11.3m(3)

Wastewater Cat 1&2 pollution incidents Water Cat 3&4 pollution incidents Customers paying a metered bill

65

Full Year Results 2018/19

South West Water Sharing outperformance with customers

Strong focus on sharing financial benefits with customers

• Unique mechanism to share outperformance transparently
• Significant benefits identified for customers to date
• Reinvestment in services, future lower bills
• Future sharing scheme for customers planned in K7 (WaterShare+)

Customer Shareholder

Cumulative to 2018/19 £m Cumulative to 2018/19 £m

80 Net Totex savings(1) 113 11 ODIs 11 19 Other items(2)

• Total Value Benefit

66

(1) Gross Totex savings (inclusive of retail), net of tax for sharing and performance purposes (2) Other items including market movements on new financing returned to customer and the impact of new legislation

Full Year Results 2018/19

South West Water Reconciliation of RORE to financials

Totex £m 2018/19 2017/18 2016/17 2015/16 Operating Costs 214 210 212 212 Capital Expenditure 154 184 191 134 Totex 368 394 403 346 Totex allowance 428 442 476 401 Totex saving 60 48 73 56 RORE benefit 27 23 35 28 ODIs £m 2018/19 2017/18 2016/17 2015/16 End of period 4.9 2.0(4) 3.9 3.6 During period (0.8) (0.3) (0.3) (1.7) Net ODI reward 4.1 1.7 3.6 1.9

Cumulative Totex(1) outperformance of £237m ODI Outperformance(2)

• Total net reward £4.1m will be recognised at the end of

regulatory period

• Rewards: bathing water quality, water restrictions,

flooding incidents

• Penalties: pollution incidents
• SIM performance on track – above average performance

and no penalty Cumulative financing outperformance(3) of £130m Regulated Equity – 62.5% notional gearing

• 2018/19 average RCV of £3,012m in 2012/13 prices

67

(1) Phasing of actual expenditure compared to the planned programme is reflected prior to calculating Totex savings (2) ODI net rewards for 2018/19 – cumulative net rewards of £11.3m (3) Interest outperformance is based on the outturn effective interest rate on net debt, translated into an effective real interest rate using cumulative K6 forecast RPI of 2.8%, notional debt gearing of 62.5%, and actual tax rates (4) Reflects prior year reassessment of £0.9m for supply interruptions relating to the extreme cold weather in March 2018

Full Year Results 2018/19

Full Year Results 2018/19